Have you ever noticed how quickly society seems to forget things?
I was just discussing this with my father last week. We were talking about car sales and where they’re trending.
I remember back in 2007 to 2008: When oil prices zoomed, we started seeing a major change in how people bought cars. No longer were the bulky gas-guzzling SUVs and trucks popular. People wanted small, fuel-efficient cars. And automakers weren’t building enough of them.
Over the next few years, we saw sedan sales soar. Everyone remembered what it was like to spend $4.50 on a gallon of gas, and the last thing they wanted to do was fill up a 33-gallon tank at that price. We even saw the average fuel economy of a new car move higher for years as people increasingly traded in less fuel-efficient cars for something with a tendency to sip — rather than slurp — gasoline.
But lately, that trend has been reversing.
If you look at the average fuel economy ratings for new vehicles sold, they’ve been flat since 2014. Why? Gas prices have been low lately. And people are starting to buy trucks and SUVs again. In fact, the automakers making the most profits right now are those that have a robust lineup of bigger vehicles.
When you think about it, it’s almost like the consumer forgot what it was like to spend more than $100 to fill up the tank. Before we know it, the old habits take hold.
Of course, this is just one example. You see this happen with credit (people load up on too much credit when rates are low) and even investing (investors think any given trend will extend ad infinitum).
There’s that old saying: “Those who don’t know history are doomed to repeat it.”
Our goal at Strategic Investment is to make sure we’re not the ones repeating past mistakes.
We’d rather use history as a guide for what we might expect in the future.
With that as a general guideline, it’s easy to note that the stock market is extremely expensive. It’s nearly as pricey as it was right before the crash of 1929 and the dot-com bubble.
It’s simple to realize that we are in the second-longest economic expansion on record … which means, really, we’re in the final few innings of this supposed economic “boom.”
And when you start to notice late payments on things like cars, credit cards and student loans rising … it’s only a matter of time until we see the same happen across the whole credit spectrum. That typically happens when the economy is in recession.
If we use history as a guide, it would seem that a recession is not just likely, but it will arrive sooner than many imagine and catch most investors off guard.
As folks who put money into stocks, this is something to note because stocks don’t trade higher in a recession. It’s not like investors are tripping over themselves to buy shares of a company set to earn less, maybe even substantially so, over the next six to 12 months.
Especially when there is no bottom in sight.
That’s why we keep an eye toward when a recession might finally occur and, more importantly, when investors may finally react to that realization.
As James Dale Davidson has said in the past, the key to successful investing can lie in trying to figure out what someone else may want to buy or sell later. In other words, we’re gauging perception.
If you know there’s something an investor will buy in the future, you can snatch it up today at a better price. In a recession, we know investors will flock to the dollar and out of any currency they saw as fragile (the euro or the yuan). That’s why we’ve positioned our portfolio for that expectation. And it’s already working out. The euro and yuan are losing value while the dollar marches higher. And we’re not even in an “official” recession yet.
Once we sniff out the first bit of data that makes a recession irrefutable to the masses, you’ll see us embrace shorting more stocks.
For now, we’ll stick with stocks that will generate an income, along with any other strategic buys we may find.
In the meantime, you can check out the open portfolio by visiting www.banyanhill.com.
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Charles Del Valle
Editor, Strategic Investment